Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

346 Money, Bank Credit, and Economic Cyclesnever reaches the level of growth undergone by monetaryprices of consumer goods and services.According to John Hicks, Giovanni Boccaccio, in an interestingpassage in the Introduction to Decameron, writtenaround the year 1360, was the first to describe, in rather preciseterms, a process very similar to the one we have just analyzedwhen he related the impact the Great Plague of the fourteenthcentury had on the people of Florence. In fact theepidemic caused people to anticipate a drastic reduction in lifeexpectancy, and thus entrepreneurs and workers, instead ofsaving and “lengthening” the stages in their production processby working their lands and tending their livestock, devotedthemselves to increasing their present consumption. 60 AfterBoccaccio, the first economist to seriously consider the effectsof a decline in saving and the resulting economic setback wasBöhm-Bawerk in his book, Capital and Interest, 61 where heexplains in detail that a general decision by individuals to consumemore and save less triggers a phenomenon of capitalconsumption, which ultimately lowers productive capacityand the production of consumer goods and services, givingrise to the generalized impoverishment of society. 6260 In the words of John Hicks himself:Boccaccio is describing the impact on people’s minds of theGreat Plague at Florence, the expectation that they had notlong to live. “Instead of furthering the future products of theircattle and their land and their own past labour, they devotedall their attention to the consumption of present goods.” [JohnHicks asks:] “Why does Boccaccio write like Böhm-Bawerk?The reason is surely that he was trained as a merchant.”(Hicks, Capital and Time: A Neo-Austrian Theory, pp. 12–13)61 Böhm-Bawerk, Capital and Interest, vol. 2: The Positive Theory of Capital,pp. 113–14. At the end of this analysis, Böhm-Bawerk concludes thatsaving is the necessary prior condition for the formation of capital. Inthe words of Böhm-Bawerk himself: “Ersparung [ist] eine unentbehrlicheBedingung der Kapitalbildung” (Böhm-Bawerk, German edition,p. 134).62 Fritz Machlup clearly exposed the error committed by the theorists ofthe paradox of thrift when he made reference to the concrete historicalcase of the Austrian economy after World War I. At that time everything